The first three quarters of 2024 have seen a steady increase in deal values reversing the slowdown of technology M&A transactions in 2023. Although the number of technology M&A deals in 2024 has been on the lower side relatively speaking, there has been a significant increase in the value of these deals compared to 2023. Compared to the first three quarters of 2023, there has been a 66% increase in deal values. In comparison to other sectors in India, the technology, media and telecommunications sector has contributed to approximately 40% of the total deal value in the first three quarters of 2024. This trend has been consistent with global technology M&A trends.

In 2024, India saw a rise in the number of unicorns mostly in the tech space, including Money View, Rapido, Ather Energy, Krutrim and Perfios. Tech companies have also fared well in their initial public offerings in 2024 including Swiggy, Sagility, Ola Electric, Ixigo, and Go Digit. There have been significant acquisitions, including Viacom 18 Media’s merger with Star India (joint venture value reported at USD8.326 million) and Bharti Airtel’s acquisition of a stake in BT Group.

Notable reasons for the uptick in this financial year (2024-25) have been:

• the Indian government’s focus on the technology sector in its budget for 2024-25, with a 52% increase in the budget allocation from the previous 2023-24 financial year;
• changes in the Indian Foreign Exchange Management (Non-Debt Investment Rules) 2019, especially in relation to cross-border share swaps between resident and non-resident parties; and
• amendments to the Companies (Compromises, Arrangements, and Amalgamations) Rules, 2016 pursuant to which companies are permitted to proceed with a cross-border merger once approval from the Reserve Bank of India (the “RBI”) is obtained, instead of approaching the National Company Law Tribunal, thereby expediting the merger process and allowing parties to more definitively estimate the timeframes involved in consummating or closing the transaction.

One of the key trends in technology M&A transactions in India in the last 12 months has been inbound M&As increasing by 32.4% year-on-year. Another trend has been an increase in equity financing relating to tech companies in the first half of 2024.

It has also been reported that there has been a significant increase in equity financing and companies raising USD29.5 billion in proceeds, which is almost twice the amount raised in the previous year during the same time period. Follow-on offerings also reportedly grew by 156% year-on-year, and block trades saw a 117% increase. IPO activity similarly grew positively by 98% from the first half of 2023.

Start-up companies previously considered establishing their companies or domiciling in foreign jurisdictions for ease of access to capital and investments, clientele and business and capital markets. However, there has recently been a trend of companies either consolidating in India itself or having incorporated outside India considering “reverse flipping” to India.

There are various reasons for the change in trend and interest that include the target market of these companies being primarily in India and better valuation proposition at the Indian exchanges as opposed to exchanges in foreign jurisdictions considering the valuation of the companies being more conducive for the Indian market. In quite a timely move, there have also been a few governmental and regulatory policies, which have helped facilitate these commercial moves.

It takes approximately two to three weeks to incorporate a private limited company in India, although the process has been quicker in some cases. Furthermore, pursuant to the Indian Companies (Amendment) Act, 2015, the minimum capital requirement of INR100,000 (approximately USD1,200) has since been omitted from the Indian Companies Act, 2013.

Start-up companies have mostly chosen to incorporate as private limited companies, given the familiarity of the structure as well as established precedents governing various aspects involving laws and business operations. This is particularly critical when nuanced structures are required because of the specific nature of the transaction.

However, limited liability partnerships (LLPs) are also prevalent amongst newly incorporated entities due to comparatively limited compliance requirements along with specific tax benefits. For LLPs, taxes are not levied on profit distribution among partners, as compared to private companies where taxes are required to be paid on the corporate income, as well as on dividends.

Entities also have the option to convert from an LLP to a private limited company and vice versa. The Indian Companies Act, 2013 also allows the establishment of a one-person company structure.

The Department for Promotion of Industry and Internal Trade has created the Startup India Seed Fund Scheme (the “SISFS”) with an outlay of INR9.45 billion (approximately USD111.84 million). As per Indian government figures, the scheme will support an estimated 3,600 entrepreneurs through 300 incubators in the next four years. The SISFS will be disbursed to eligible start-ups through eligible incubators across India.

For government funding, an online call for applications is often posted pursuant to which start-ups are shortlisted. Upon selection, certain guidelines as prescribed by the government are required to be complied with along with ensuring the utilisation of funds as per the guidelines.

Venture capital firms, angel investors, family offices and high net worth individuals provide early-stage financing to start-ups. Documentation for these investments is quite formal and fairly standard, although the documentation is more detailed and nuanced with venture capital financing rounds. Early-stage investments take the form of convertible or SAFE notes and progress to equity and optionally or compulsorily convertible instruments.

There are numerous local venture capital firms, local investment firms associated with and involving high net worth individuals as well as family offices, who provide venture capital, and these are fairly easily available to start-ups. Funding through foreign venture capital firms is also quite a common source of funding available to start-ups in India beyond the angel funding and family and friends round.

Documents pertaining to venture capital investments have become quite standardised over the years.

Start-ups are often incorporated as private companies. To give effect to exit mechanisms where the proposal is to list on an exchange, these private limited companies convert into public companies.

In terms of jurisdiction, companies do tend to domicile or redomicile in a jurisdiction based on the key target and operating market, access to funds, business valuations as well as opportunities to list as discussed in 2.1 Establishing a New Company.

As per various reports, India has provided a strong IPO market with an increase in the number of deals (to 262) by 32.3% year-on-year during the first nine months of 2024. Certain examples of recent IPOs are Ola Electric, Digit Insurance, and Swiggy.

IPOs are considered one of the key exit options as they provide liquidity to all stakeholders. Strategic or secondary sale as an exit option is also explored, and the nature of exit also depends on the business of the entity, market interest and growth prospects.

Investment documentation would typically include all exit options (ie, IPO, secondary or strategic sale), and the stakeholders take a final decision based on various factors including these ones.

On 24 January 2024, the Ministry of Corporate Affairs released the Companies (Listing of equity shares in permissible jurisdictions) Rules, 2024. These rules permit certain unlisted and listed public companies to list in permissible foreign jurisdictions at the Gujarat International Finance Tec-City – International Financial Services Centre (the “GIFT-IFSC”) in India where they satisfy the prescribed conditions.

Currently, the only permitted exchanges are the India International Exchange and the NSE International Exchange in the GIFT-IFSC. Trading in these exchanges can only be undertaken by “permissible holders”, which is defined to mean “not a person resident in India”.

Certain companies have been seen to primarily list on the Indian stock exchanges on the main board, while others take the route for small and medium-sized enterprises (SMEs) IPOs. SMEs proposing an initial public offer should ensure that their post-issue paid-up capital is not in excess of INR100 million (approximately USD1.18 million) or their post issue face value capital if in excess of INR100 million (approximately USD1.18 million) should not be in excess of INR250 million (approximately USD2.9 million).

While several options are available, the decision to list on a home country exchange or a foreign exchange is dependent on factors discussed in 3.1 IPO v Sale.

Certain minority squeeze-out provisions have been detailed in 6.8 Squeeze-Out Mechanisms. Accordingly, an Indian company listing in foreign exchanges as per 3.2 Choice of Listing, may still avail of the squeeze-out mechanisms available to the companies under the Indian Companies Act, 2013 subject to and along with any specific mechanisms of the relevant exchange they are listed at.

In a proposed liquidity event of a company, the shareholders may choose to sell via an auction or bid process or a bilateral negotiation. While bilateral negotiations are more common, auctions are also considered in transactions of larger value.

Auctions are sometimes considered more efficient for the seller as they are implemented in parallel with various prospective purchasers to achieve the intent of sale within a definitive time period and ensure faster negotiations and definitive closure. Bilateral negotiations are targeted sales and acquisitions and may therefore take more time. There can be further delays if bilateral negotiations do not conclude, and the company or seller would have to restart the process.

The structure of a transaction in case of a liquidity event would vary depending on numerous factors. Where there are several investors on the cap table, preferred routes would be to list the company or carry out a full company sale. In cases where there are fewer investors or the promoter is a key stakeholder and also fully involved in operations, a controlling stake sale or a strategic buyout is also common.

There are also instances of mergers between two tech companies. The most prominent in recent years have been Nazara Technologies, a gaming company’s acquisition of inter alia Moonshine Technology (the parent company of Poker Baazi) and acquisitions of offshore entities like Publishme, Ninja Globa, Fusebox Games, Paper Boat Apps and Deltias Gaming.

Cash is typically the primary form of consideration in India, unless there is a valuation gap that is not closed during negotiations. In these instances, the transaction is sometimes structured with multiple tranches of closing, with an earn-out component. In certain other cases, a full stake sale is also structured with a rollover equity investment in the acquirer entity.

Founders who are involved in the day-to-day operations and management are expected to stand behind the representations and warranties for specified periods of time based on the nature of the representations and warranties. VC investors typically only provide representations on title to the securities held by them.

There is a longer time period offered for indemnity pertaining to fundamental warranties as compared to business warranties. Business warranties are often provided for the time period prescribed under law. These time periods vary depending on diligence findings and the nature of the outstanding or likely claims that may arise in the future. These factors also determine the necessity of an escrow holdback. However, escrows are uncommon unless there are significant potential claims identified during diligence. In case of a transaction involving both Indian and foreign parties, escrow mechanisms are subject to the Indian Foreign Exchange Management Act, 1999 and the underlying rules and regulations (see 6.4 Consideration and Minimum Price).

Representations and warranties insurance is not uncommon in India. This type of insurance is explored in deals of a larger size given the cost and effort involved in procuring this insurance. However, where transactions have a shorter closing date, R&W insurance may not be used as it is often time-consuming given the customary carve-outs.

Spin-offs are common and an undertaking often makes the decision to spin-off for business reasons involving operational efficiency, unlocking of value, independent focus and targeted fundraising options for a specific business vertical.

Spin-offs can be structured in a tax compliant and efficient manner depending on the nature and corporate structure or treatment of the business. Demergers are considered tax efficient where there is a preference to replicate the share capital and pre-agreed inter se economic interests of the stakeholders. Some spin-offs may require approval from the regulatory authorities while others can be effected within shorter definitive timeframes akin to contract-based investment transactions.

Follow-on business combinations are possible and are often considered in the context of specific business requirements or tax and other operational efficiencies. In certain cases, these transactions take the form of a demerger (of a specific business from one entity) followed by a merger (into the target entity). However, it is not always the norm, and both restructurings (demerger and merger) can be undertaken independently. These decisions are often also dependent on the stakeholders involved and the terms governing their investments in the company as well as the potential investments and fund raises that will govern the company’s business operations.

Spin-offs can be undertaken through business transfer agreements, asset transfer agreements, slump sales or demergers. The time period for concluding these spin-offs would be dependent on the manner in which the spin-offs were executed.

For example, in cases of demerger, the approval of the National Company Law Tribunal is required. Other compliance requirements like issuing a public notice and notifying creditors and other stakeholders would also be required. Demergers can accordingly be time-consuming, while a slump sale or business transfer or asset sale could be concluded quickly as it would only involve independent parties without any involvement by a regulatory agency.

Purchasers or acquirers often require the seller to provide confirmation that there are no pending or likely claims from the tax authorities as under Indian law, a sale of asset during ongoing tax proceedings can be reversed by the authorities with a few exceptions.

Where there is an acquisition of a material stake in a public listed company in India (breaching a defined threshold either individually or in the aggregate), an “open offer” has to be made to the public shareholders. The “open offers” need to be for at least 26% of the shareholding of the target company.

The Securities Exchange Board of India’s (SEBI) Regulations (the “SEBI Regulations”) also prescribe that any acquirer, together with persons acting in concert with them to acquire shares or voting rights in a target company, which together amount to 5% or more of the shares of the target company, will disclose their aggregate shareholding and voting rights in the target company. This reporting will have to be undertaken within two working days of receipt of intimation of allotment or acquisition of shares or voting rights.

The buyer is required to disclose its intention to either delist the target company or retain the listed status of the target company in the public announcement required to be made.

The SEBI Regulations stipulate in certain instances that a mandatory “open offer” is made, ie, where:

• the acquirer proposes to acquire 25% or more of the shares or voting rights in a target company;
• the acquirer’s stake is equal to 25% or more of the voting rights in the target company; and
• there is a proposal to undertake an additional 5% shares or voting rights in a target company, etc.

All of these instances include the stake of the acquirer and the persons acting in concert with the acquirer together in determining if there is a breach of the threshold or trigger for the “open offer”.

For acquisitions of unlisted public companies, there are options inter alia of undertaking a fast track merger (a merger involving a wholly owned subsidiary), a regular merger where the approval of the National Company Law Tribunal would be required (involving companies that are not in a holding-subsidiary relationship or having a common parent holding structure) or an acquisition (which would be the quickest if there are no regulatory approvals required).

In India it is typical for cash to be the primary form of consideration as discussed in 4.3 Liquidity Event: Form of Consideration.

There are also certain pricing norms under the Indian Foreign Exchange Management Act, 1999. In the event the stake is being purchased by a non-resident party from an Indian resident person or party, the purchase price cannot be lower than the fair market value as determined on an arm’s length basis by a registered valuer. There is also an option to make a deferred payment to achieve any specific commercial outcome, provided that the payment is made within 18 months from the date of the transfer agreement.

The deferred consideration or payment cannot exceed 25% of the total consideration and the amount effectively paid should be compliant with pricing norms. Similarly, sellers can only provide indemnity escrow of up to 25% of the total consideration and only up to 18 months, provided the amount effectively paid remains compliant with pricing norms.

For takeover offers, there are minimum price stipulations as well. The regulations governing takeovers have various mechanisms to calculate the “open offer” price depending on the nature of the acquisition.

Common conditions for a takeover offer include minimum mandatory offer; price conditions; escrow conditions; and interest in the event of delay in payment.

In negotiated transactions, parties can enter into an acquisition agreement or a binding contract. These agreements would trigger a mandatory “open offer”. Target companies are typically contractually obliged to ensure business and operations of the company are run in the same manner, carry out non-alienation of any assets or sell them, or enter into voting arrangements and obligations of this nature.

If the board considers that the transaction would be beneficial, it will recommend it to its stakeholders and seek approval. Representations and warranties are included as negotiated to ensure that any unknown liabilities or claims do not erode the transaction value.

An acquirer may make an “open offer” conditional on the minimum level of acceptance, provided that there is a condition to the effect that in the event the desired level of acceptance of the “open offer” is not received, the acquirer will not acquire any shares under the “open offer” and the underlying transaction that triggered the “open offer”.

There are squeeze-out mechanisms which essentially permit acquirers to acquire the delisted shares of a company to consolidate ownership. Under the Indian Companies Act, 2013, if a scheme of arrangement or contract involving a share transfer is approved by those holding at least 90% in value within four months after making an offer, the transferee company can notify dissenting shareholders within two months after this period to acquire their shares.

However, the dissenting shareholders can approach the National Company Law Tribunal to object to the acquisition of their shares in instances of the scheme not being in the public interest, it is not just, fair or reasonable, or the scheme unfairly discriminates against a class of shareholders.

There are also provisions for a 90% stakeholder in a company to notify the company to purchase the remaining stake in the company.

A company can also buy-back its shares. A board resolution is required for a buy-back of up to 10% of the total paid up capital and free reserves of the company. However, a special resolution would have to be passed by the members of the company for a buy-back of 10% or more of the total paid up capital and free reserves of the company.

There is a further cap of 25% of the aggregate of the paid up capital and free reserves of the company in one financial year and a subsequent offer of buy-back can only be made one year after the date of closure of the preceding offer of buy-back. However, buy-backs are only an offer by the company and shareholders do not have to participate.

Listed companies can delist their equity shares as per the relevant guidelines.

Before making the public announcement of an “open offer” for acquiring shares under the regulations, the acquirer will ensure that firm financial arrangements have been made for fulfilling the payment obligations under the “open offer” and that the acquirer is able to implement the “open offer”, subject to any statutory approvals for the “open offer” that may be necessary. Furthermore, the acquirer will no later than two working days prior to the date of the detailed public statement of the “open offer” for acquiring shares, create an escrow account as security for performance of their obligations under the relevant regulations, and deposit such aggregate amount in the escrow account as per the relevant regulations.

The following deal protection measures may be available.

• Break-up fees or reverse break-up fees are not very common in the Indian transaction market. There is also a restriction on public companies to provide financial assistance for the purchase or subscription of their own shares.
• Matching rights would apply akin to a right of refusal where there is a competing bid, although the same would not come into play where there is an exclusivity period.
• Exclusivity periods are typically stipulated to prevent companies from soliciting other bids and to give effect to any conditions that may need to be complied with.
• In most instances of a proposal for transfer of shares involving a material or significant stake, approval of the shareholders of the company is required based on the terms of a shareholders’ agreement executed between the parties.

The buyer would typically have visibility on the minimum quantum of shares that they would hold after the acquisition. So long as the unacquired shares are not significant enough in quantum to have an impact on the manner in which the acquirer would prefer to operate the business, the acquirer may proceed with the transaction.

No alterations solely affecting the rights of the remaining shareholders which may be considered prejudicial or disproportionate can be made. However, certain challenges would remain in giving effect to related party transactions within the acquirer group.

In negotiated transactions, principal shareholders provide confirmations to sell their shares by executing binding contracts. There is usually no “out” for a better offer, unless the acquirer breaches the contractual terms or the exclusivity period or long-stop date for the transaction has expired or a condition precedent for the closing cannot be achieved.

Companies first issue a draft offer document which is filed with the SEBI. Draft offer documents are available in the public domain including the portal of the SEBI, the concerned stock exchanges, or concerned merchant banker. The detailed timeframes for the various steps leading up to the listing are contained in the offer document.

Once made an “open offer” cannot be withdrawn except inter alia in the following circumstances.

• Statutory approvals required for the “open offer” or for effecting the acquisition have been refused subject to the requirement for approvals having been specifically disclosed in the detailed public statement and the letter of offer.
• Any condition stipulated in the share purchase agreement is not met for reasons outside the reasonable control of the acquirer, subject to the conditions having been specifically disclosed in the detailed public statement and the letter of offer.
• Such circumstances which in the opinion of the SEBI merit withdrawal of the “open offer”.

If the acquirer is unable to make the payment within ten working days of the closure of the “open offer”, the acquirer will be required to pay interest (at a rate specified by the SEBI) to the shareholders of the target company for the delay. If statutory approvals are required for some but not all shareholders, the acquirer can make payment to such shareholders in respect of whom no statutory approvals are required in order to complete the “open offer”.

The Indian Companies Act, 2013 is the primary law that governs companies. For certain specific businesses (payment gateways and payment aggregators, non-banking financial companies), approvals of other authorities such as the RBI are required.

Depending on the nature of the proposed business activity, it can take between eight and 12 weeks to obtain the approval.

The primary securities market regulator for M&A transactions involving listed entities in India is the SEBI. In a recent change, certain inbound merger approvals are also provided by the RBI. The approval of the National Company Law Tribunal would otherwise be required for merger transactions not satisfying the conditions for a fast-track merger. Parties would factor in a certain time period for obtaining the necessary approvals in the documents executed between them.

There are also other sector specific and other regulators (like the Competition Commission of India and Insurance Regulatory and Development Authority) whose approval may be required depending upon the nature and sector of the business operations of the entities involved.

In India, 100% foreign direct investment is permitted under the automatic route in sectors other than inter alia the following:

• gambling and betting businesses;
• real estate business;
• trading in transferable development rights;
• manufacturing of tobacco, cigars, etc;
• agriculture; and
• atomic energy, etc.

Investment in some of these sectors are prohibited while investment is only allowed through the government approval route in others.

The necessary filings are required to be made in relation to all investments through the direct route.

Furthermore, investments from countries sharing land borders with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, are only permissible through government approval.

As detailed in 7.3 Restrictions on Foreign Investments, certain inbound investments can only be made through the government approval route. Investment in sensitive sectors like telecommunication and defence would also require a confirmation from the relevant Ministry, eg, the Ministry of Home Affairs.

Outbound investments to most jurisdictions are permitted, except in the following businesses and activities:

• real estate activity;
• gambling in any form; and
• dealing with financial products linked to the Indian rupee.

In these businesses and activities government approval is required.

In the event the transaction is within the permitted thresholds of the assets and turnover, no filings are required to be made. Furthermore, there is a deal value threshold introduced of INR20 billion (approximately USD237 million), in which case notification to and approval by the Competition Commission of India (the “CCI”) would be required. In acquisitions or hostile takeovers, the acquirer is required to notify the CCI. For mergers or amalgamations, a joint notice by both parties involved will have to be issued to the CCI.

There are multiple pieces of social security legislation that apply to Indian companies. IT or ITeS sectors have been provided certain exemptions from compliance with certain provisions in the social security legislation (subject to certain conditions). Before the acquisition of the target company, acquirers undertake due diligence and seek representations to verify compliance with the social security legislation and ensure no claims arise in the future in relation to these.

Furthermore, new Labour Codes have been proposed that consolidate and introduce several amendments to the current labour legislation. However, these are yet to come into force.

The RBI is the Indian central bank. For certain transactions, such as inbound mergers, the approval of the RBI is required. Other transactions will need to comply with conditions like pricing to fall within the purview of transactions under the automatic route.

Some key legal developments in relation to technology M&A are as follows.

• Foreign Exchange Management (Non-debt Instruments) Rules, 2019: the transfer of equity instruments of an Indian company between a resident and non-resident may be effected by way of any of the following two swaps:
1. a swap of equity instruments of another Indian company; and
2. a swap of equity capital of a foreign company in compliance with the Overseas Investments Rules.
• SEBI (Delisting of Equity Shares) (Amendment) Regulations, 2024: the Regulations stipulate that when delisting is proposed upon acquisition, the acquirer will open an interest bearing escrow account with a scheduled commercial bank, no later than seven working days from the date of obtaining the shareholders’ approval, and deposit an amount equivalent to 25% of the total consideration in that account. This is calculated depending on the manner in which the delisting is proposed. The Regulations also stipulate that before making the detailed public announcement, the acquirer will deposit the remaining 75% of the total consideration amount in the escrow account.
• Competition (Amendment) Act, 2023: This legislation modifies the definition of control to include “material influence” in addition to de facto and de jure control and has been interpreted as having factors present that enable an entity to influence the affairs and management of another enterprise. These factors include majority shareholding, veto rights (attached to minority shareholding), board representation, contractual covenants, etc. The Act further stipulates an additional condition for a transaction which is not notifiable to the CCI on the basis of existing thresholds (asset and turnover criteria), but would be notifiable if:
1. the value of the transaction exceeds INR2,000 crore (approximately USD240 million); and
2. the target enterprise has “substantial business operations in India”.

Due diligence information is provided to enable the acquirer to verify and satisfy itself of the business of the company as represented to the acquirer. Robust non-disclosure agreements are executed to ensure confidentiality. Technology due diligence may cover the technology assets, the licences, ownership and registration status, contracts executed for use or when acquiring the assets and IT infrastructure and processes, including security protocols.

The Information Technology Act, 2002 is the primary data privacy legislation in India. Elsewhere, the Indian Digital Personal Data Protection Act, 2023 was recently notified but has not yet come into effect.

The issuer is required to make a public announcement in daily newspapers with a wide circulation within two days of filing the draft offer document with the SEBI. This announcement should disclose the fact the draft offer document has been filed with the SEBI and invite comments. See 6.1 Stakebuilding and 6.2 Mandatory Offer.

See 6.13 Securities Regulator’s or Stock Exchange Process.

An acquirer (and any persons acting in concert) are required to make financial disclosures to the shareholders and the target company in the prescribed format.

The public announcement has to include the nature of the proposed acquisition such as purchase of shares or allotment of shares, or any other means of acquisition of shares or voting rights in, or control over the target company.

The detailed public statement pursuant to the public announcement should contain such information as may be specified in order to enable shareholders to make an informed decision with reference to the “open offer”.

The public announcement and the detailed public statement should not omit any relevant information or contain any misleading information.

The duties of directors are contained in the Indian Companies Act, 2013, which inter alia include:

• acting in accordance with the articles of association of the company;
• acting in good faith in order to promote the objectives of the company for the benefit of its members (including minority shareholders of the company); and
• acting in the best interests of the company, employees, and the community.

The board of directors are typically permitted to establish special or ad hoc committees. In line with Table F of the Indian Companies Act, 2013, (which is the model articles of association that a company can adopt), “the board of directors may delegate any of its powers to committees consisting of such member or members of its body as it thinks fit. Any committee so formed shall, in the exercise of the powers so delegated, conform to any regulations that may be imposed on it by the board of directors”.

Some of the common committees that are formed are the audit committee, nomination and remuneration committee, stakeholders relationship committee, corporate social responsibility committee and/or investment committee.

A director of a company who has a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company should disclose that and the director should not participate in the matter. In certain cases, ad hoc committees are constituted to deal with the conflicts involved.

The board is required to act in a fiduciary capacity in the interests of the company. It is not common to have shareholder litigation challenging the board’s decision to recommend a merger or acquisition transaction, particularly where the companies are promoter driven and the interests of minority shareholders are not prejudicially affected by the transaction.

Shareholder litigation would arise where minority shareholders consider the transaction value to be inadequate including where there is a conflict of interest or related parties involved, or where there are disproportionate terms and economic benefits to the various stakeholders involved. A buyer should ensure that the transaction structure is clear, duly disclosed, and the consideration paid to the various stakeholders is proportionate to their shareholding.

In promoter driven companies in India, there is typically an overlap of board and shareholder interests. However, where there are specific considerations and provisions governing directors independent of the company, directors do seek independent advice. A financial advisor typically provides a holistic opinion on the transaction and the board often resigns following the change in ownership of the company.